Our budgeting sub-system has many features that are completely unique to our General Ledger module. We will discuss these features in a series of three tips: Part I will discuss the types of budgets available and the management of the budget process. Part II will discuss maintaining budgets, foreign currency, and the special budget management graphical interface. Part III will discuss the wizards available to create new budgets, copy from existing budgets, copy from comparatives, and combining these methods to obtain the desired results.
There are four key pieces of information representing a specific budget: Budget Year, Budget Type, Budget Number, and Budget Revision. Budget Year is a four character numeric field representing the year. There is no limit to the number of years of budgets you can keep online. The budget types are Operating and Management. Operating budgets are often exaggerated to represent elevated expectations and are often used to set bonus levels for managers and other key personnel. Using the operating budget with financial institutions or other public representation of future earning could be considered fraudulent. Management type budgets allow you to maintain a more conservative representation of future operating cost and earning that can be used for acquiring loans, and if you are a publicly traded company, for projected earnings reports. Budget number is a two character numeric field that will accommodate companies wishing to adjust budgets on a weekly basis throughout the year. Budget Revision will accept numbers from “0” to “9” and “Final”. This allows companies to review budgets then create new Revisions with the corrected budgets. This maintains an audit trail of the life cycle of the budget. For example, the original budget is assigned revision zero. Departments meet, discuss the budget, modify the budget, and input the revised budget under the same year, type, and number, but with a new revision number. This cycle may repeat itself two or more times. When the final budget is input into the system, revision should be “Final”. If your budget review cycle has seven evolutions, then you should have a zero, one, two, three, four, five and a Final revision. The revisions can be maintained per budget number, per budget type, and by year. This gives you over 2000 individual budgets per year.
Next week we will discuss what information can be maintained at the detail level and what it means. We will also review all the capabilities of the budget graph that is standard with the Enterprise Edition.
Picking up where we left off last week, the budgeting system is based on two relational database tables: GL Budget and GL Budget Detail. The budget table maintains information related to the budget year, type, number, and version. All detail information related to account code, profit center, currency, production units, and amounts is maintained in the budget detail table.
The system keeps the usual account code information and it also calculates a total budget for the year by account code. Many companies are only concerned with how much it spends each year. Budgeting by period only creates unneeded work and makes it more difficult to write meaningful reports. You may optionally turn of budgeting by period and only input yearly budgets.
When inputting budgets by period, you will see several fields that are not found in other budgeting systems: Foreign Currency Amount, Foreign Currency Exchange Variance, and Production Units. Of course there is the budget amount field too. When budgeting for multinational companies, you do business in native currencies and should budget in the native currency. The system will automatically convert foreign currency to your home currency. The problem with this, is that exchange rates fluctuates during the year, and the only way to get an accurate picture is to recalculate based on current period exchange rates. What are the possible mistakes that could be made here? The first and not very obvious one is to recalculate the foreign currency. If a bag of nuts and bolts cost 10 pesos and the exchange rate changes, the bag is still going to cost 10 pesos. You should not and do not change the foreign currency budget amount. Should you change the original conversion to the home currency? Yes and no! Yes – because you should change the home currency amount when an exchange rate change; No – because you will lose a valuable point of reference when you go back to analyze how the budget held up. In steps the Foreign Online Marketing Exchange Variance field. This is where the delta change in the home currency should be placed. For example, lets say when the budget was created, the peso was being exchanged at 2.5 (home currency of 4.00). By the time the 5th period rolls around, the exchange rate is 2.0 (home currency of 5.00). Instead of changing the original calculation of 4.00, 1.00 is added to the foreign currency exchange variance field, for a total of 5.00. This calculation process will be run in the Bank Book module when it is available in the first quarter of 1999.
Production Units gives your budget a point of reference. For example lets assume you are going to produce 1,000 widgets. Your budget production costs are $1,000. The department responsible for production spends $1,000. Are they on budget? If they produced exactly 1000 widgets, SEO Expert yes. What if they only produced 900? What if they produced 1100? Production units do not have to be inventory items. For instance, if your company is a job placement / temporary service, your production units might be hours or days. How you decide what your production units are and how you calculate them will be up to you.
One of the most innovative features of the budgeting sub-system is the. One of the biggest complaints of any budgeting system, is the user interface. Most companies have such problems with users being productive, that they don’t even bother to do budgets in their accounting system, but resort to spread sheets or other third party, search engine optimization budgeting systems. One of the design goals of the Graphical Interface was to replace the need for doing budgets outside the system. Here at BSS, we think the design team met this expectation and delivered much, much more!
First, changing amounts on this page does not effect the original budget numbers until they are specifically applied (saved). This allows the user to do multiple “what ifs” and reset the numbers to their original amounts any number of times. The user can set amounts by dragging a period amount bar or typing in a number. The user can lock and unlock specific periods to isolate them as needed. When changing the graph visually with a mouse, the periods that are not locked automatically change to make a smooth progression from one period to next. Locked periods are taken into account, but do not change. The aspect ratio can also be changed, giving you more or less detail as the circumstance dictates.
Another innovative feature is locking the yearly total budget. Often the person responsible for the budget knows the yearly budget and is struggling with how to distribute it across the allotted periods. When one period is changed, all the other unlocked periods are changed to maintain the proper yearly budget total (you must have a least one unlocked period besides the one you are adjusting for this to work).
The graphical interface is by far the fastest and easiest way to review and adjust budgets.
Next week we will review the two wizards that allow you to create, copy, and manage your budgeting process.